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I am auditing a SMSF where TPD Insurance have been received.
The member is 57 years old. Money received in SMSF $4000,00 for TPD have been paid as lump sum to the member. Member is permanently disabled.
Can this be done in view the member is below retirement age. I believe there would be taxable and tax free component of $400,000.
Hi Shalendra
Yes a SMSF can release benefits to a member if they have permanent incapacity.
The member needs to apply to the trustees for the benefits and provide 2 certificates from 2 medical practitioners verifying their permanent incapacity.
The rate of tax depends on:
1) has the member met their preservation age?
2) has the member turned 60?
3) are the benefits received as a pension or a lump sum?
3) what are the taxable and tax free components of the benefits?
The rules and tax implications are complicated. If a member has a terminal medical condition and they receive 2 medical certificates that states that they are likely to die within 2 years the benefits can be paid out as a lump sum benefit & be paid tax free (if within 2 year period).
For further guidance re the tax implications refer:
Thanks
SMSF AAA